Consider the two-period life-cycle model and suppose that individuals receive labor income the first and second periods, Y1 and Y2. Denote by r the interest rate and assume that r = 0.1 (10%). There are two individuals in this economy, agent A and agent B. They both have the same labor income, Yi = 100, Y2 = 50. Thus, there is total equality in the labor income distribution. The utility function of agenti, i= A, B, is U;(C1, c2) = In(c:)+ B In(c2), where ci consumption in the first period, and c2 consumption in the second period (price of c, and c2 equal to one). Agents differ in the value of B and Ba = 0.7 and ßs = 0.6. A) Find the value of th wealth, Wi, of each individual in the second period (i.e. their savings before the return they g on it ). Is the distribution of wealth more or less equal than the distribution of income? B) Continue with the same economy as in the previous question. If the government establishes a tax rate of 25% on the capital income ( and the government does not return that revenue to the agents), what happens with the distribution of wealth? Select one: O a. The distribution of wealth becomes more unequal than before because now WA=13.98103 and Wg=8.2202 Agent B only has 58.7955% of the wealth of A, i.e., 8.22021/13.98103 =0.587955 O b. The distribution of wealth becomes more unequal than before because now WA=14.88150 and Wg=9.0102 Agent B only has 60.5465% of the wealth of A, i.e., 9.01023/14.88150 =0.605465 O c. The distribution of wealth does not change because the agents have preferences such that savings do not depend on the tax rate on capital income. O d. The distribution of wealth becomes more unequal than before because now WA=13.8167 and Wg=8.43023 Agent B only has 61.0149% of the wealth of A, i.e., 8.43023/13.8167 0.610149
Consider the two-period life-cycle model and suppose that individuals receive labor income the first and second periods, Y1 and Y2. Denote by r the interest rate and assume that r = 0.1 (10%). There are two individuals in this economy, agent A and agent B. They both have the same labor income, Yi = 100, Y2 = 50. Thus, there is total equality in the labor income distribution. The utility function of agenti, i= A, B, is U;(C1, c2) = In(c:)+ B In(c2), where ci consumption in the first period, and c2 consumption in the second period (price of c, and c2 equal to one). Agents differ in the value of B and Ba = 0.7 and ßs = 0.6. A) Find the value of th wealth, Wi, of each individual in the second period (i.e. their savings before the return they g on it ). Is the distribution of wealth more or less equal than the distribution of income? B) Continue with the same economy as in the previous question. If the government establishes a tax rate of 25% on the capital income ( and the government does not return that revenue to the agents), what happens with the distribution of wealth? Select one: O a. The distribution of wealth becomes more unequal than before because now WA=13.98103 and Wg=8.2202 Agent B only has 58.7955% of the wealth of A, i.e., 8.22021/13.98103 =0.587955 O b. The distribution of wealth becomes more unequal than before because now WA=14.88150 and Wg=9.0102 Agent B only has 60.5465% of the wealth of A, i.e., 9.01023/14.88150 =0.605465 O c. The distribution of wealth does not change because the agents have preferences such that savings do not depend on the tax rate on capital income. O d. The distribution of wealth becomes more unequal than before because now WA=13.8167 and Wg=8.43023 Agent B only has 61.0149% of the wealth of A, i.e., 8.43023/13.8167 0.610149
Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter2: Systems Of Linear Equations
Section2.4: Applications
Problem 6EQ: Redo Exercise 5, assuming that the house blend contains 300 grams of Colombian beans, 50 grams of...
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